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"... What determines which assets are used in transactions? We develop a framework where the extent to which assets are recognizable determines the extent to which they are acceptable in exchange – i.e., it determines their liquidity. Recognizability and liquidity are endogenized by allowing agents to in ..."

What determines which assets are used in transactions? We develop a framework where the extent to which assets are recognizable determines the extent to which they are acceptable in exchange – i.e., it determines their liquidity. Recognizability and liquidity are endogenized by allowing agents to invest in information. We analyze the effects of monetary policy. There can be multiple equilibria, with different transaction patterns, and these patterns are not invariant to policy. We show small changes in information may generate large responses in asset prices, allocations and welfare. We also discuss some issues in international economics, including exchange rates and dollarization. ∗We thank the Editor and referees for many extremely useful suggestions. We thank Neil Wallace, Guillaume

...ver assets to sellers directly, or use them to collateralize debt. Hence, assets facilitate exchange. This much is standard in modern monetary theory, what the recent surveys by Williamson and Wright =-=[58]-=-, [59] and Nosal and Rocheteau [47] call New Monetarist Economics. The novel feature emphasized here is that some assets are not as good as others at facilitating transactions due to asymmetric inform...

"... The views expressed are those of the individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors. Federal Reserve Bank of St. Louis Working Papers are preliminary materials circulated to stimulat ..."

The views expressed are those of the individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors. Federal Reserve Bank of St. Louis Working Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to Federal Reserve Bank of St. Louis Working Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors.

"... Why do some sellers set prices in nominal terms that do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption. Here it is a result. We use search theory, with two consequences: prices are set in dollars since money is the medium of exchange; and equilib ..."

Why do some sellers set prices in nominal terms that do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption. Here it is a result. We use search theory, with two consequences: prices are set in dollars since money is the medium of exchange; and equilibrium implies a nondegenerate price distribution. When money increases, some sellers keep prices constant, earning less per unit but making it up on volume, so profit is unaffected. The model is consistent with the micro data. But, in contrast with other sticky-price models, money is neutral.

"... We examine two monetary models with periodic interactions in centralized and decentralized markets: the cash-in-advance model and the model in Lagos and Wright (2005). Given conformity of preferences, technologies and shocks, both models reduce to a single difference equation. In stationary equilibr ..."

We examine two monetary models with periodic interactions in centralized and decentralized markets: the cash-in-advance model and the model in Lagos and Wright (2005). Given conformity of preferences, technologies and shocks, both models reduce to a single difference equation. In stationary equilibrium, such equations coincide when the price distortion present in one model, due to Nash bargaining, is replicated in the other using a tax on cash revenues. In that case, the quantitative implications for the welfare cost of inflation in each model are also comparable. Differences in the model’s performance reduce to differences in the pricing mechanism assumed to govern those transactions that must be settled with the exchange of cash.

... and noted that such a device could be used to unify several results in the literature [5, 15]. These days, proponents of the framework in [9] (LW model, hereafter) sharply criticize other approaches =-=[17]-=-, while proponents of models with nominal price rigidities note how the approach is helpful for policy analysis [6]. One could say that the “best approach to modeling money” debate is alive and well. ...